COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(MR JUSTICE HART)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE MAY
LADY JUSTICE ARDEN
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MR J EVANS (instructed by Messrs Batt Broadbent) appeared on behalf of the Respondent.
Crown Copyright ©
Lord Justice Auld:
"17. Apart from the notional division of the taxable profits shown in the tax returns there seems to have been no accounting as between the two brothers in relation to the profits of either of the Chic Boutique business or of the Khan and Co property management business. In general the finances of both businesses appear to have been controlled by Afzal who in practice seems to have allowed Ashraf to pay himself out of the modest earnings of Chic Boutique and to have undertaken through Khan and Co the payment of the mortgage, council tax and insurance in connection with Ashraf's residence …
18. From 1999 onwards the relationship between the two brothers appears to have been more and more fractious. I have not found it easy to obtain a clear picture as to why this change came about. According to Ashraf the breakdown began with a disagreement between the two brothers over a plan to refinance the business. Afzal had retained brokers for this purpose and agreed that they be paid a fee for their services to which Ashraf took exception. I think it likely that it was only in the course of this refinancing exercise that Ashraf came to have a real idea as to the potential size of the business and the implications of his being a 50 percent partner in it. He began to ask questions, in particular as to who owned particular properties and why the ownership of some properties which he had thought were owned by the nominees of the partnership had apparently been transferred into Afzal's sole name. He began to distrust the answers which he was given by Afzal and the differences between their respective lifestyles which at one time had simply seemed to reflect their different roles in the businesses began to rankle. In crude terms Ashraf believed that profits generated by the partnership business were being diverted by Afzal into his own pocket"
19. For his part Afzal plainly regarded Ashraf's unaccustomed inquisitiveness and acquisitiveness as both extremely irritating and impertinent … By the time the two brothers fell out Afzal had persuaded himself that Ashraf had never pulled his weight in the property management business. Indeed that they had never really been partners at all. On Afzal's view of the matter Ashraf had been admitted to the business only in the sense that he had been allowed to call himself a partner. His entitlement to share in the profits of the business was simply an entitlement to be paid such share if any of the profits as Afzal chose to pay him and he had no interest in the capital of the partnership."
"Whether … Ashraf's claim to a share of the assets of the partnership Khan and Co arising on the dissolution of the partnership had been compromised by the agreement … [of 3 August 2002]."
1) Ashraf would have no further interest in the business of Khan and Co and that Afzal could continue to trade under that name.
2) Afzal would have no further interest in Chic Boutique and that Ashraf could continue to run it.
3 Ashraf would have the entire legal and beneficial interest subject to mortgages in three properties then registered in their joint names.
4) Afzal would have the entire legal and beneficial interests in certain other properties then registered in their joint names.
5) Ashraf acknowledged that he had no claim on another property that he had mistakenly believed was then registered in their joint names.
1) joint letters from Ashraf and Afzal to the bank, respectively instructing the bank to remove Ashraf's name from the Khan and Co bank account held by it and to remove Afzal's name from the Chic Boutique bank account held by it.
2) A letter from both of them addressed "To whom it may concern" recording that Ashraf had full interest in three retail properties and that Afzal had "full interest" in two other properties.
4) A letter from Ashraf to the bank disclaiming any interest in a further property, 86 Hainault Road, Leightonstone E11 1EH, which had been registered in their joint names, and in which he informed the bank he had only acted as trustee for Afzal (following some exchanges shortly after with Afzal through Aslam, he followed with a further letter to the bank to be read with it, stating that he had agreed to purchase a 50 percent share in that property at the market value less the amount of various charges on it).
"We were all satisfied that they have settled their entire business affairs and Ashraf was to go his own way from then on."
"We were all satisfied that they had settled their differences at that time."
"In my judgment Aslam was giving me an honest and accurate account of what transpired between the two brothers at the meeting. Accordingly I do not accept Ashraf's assertion that it was expressly made clear at the meeting that there were issues potentially unresolved by the agreements then reached and which might be the subject of litigation in the future. I also think that Aslam's perception that Afzal would never have conceded the 'three shops' had he believed that Ashraf might in the future pursue other claims, as an accurate one."
"It does not however … follow that either Ashraf or Afzal believe that Ashraf had bound himself not to make such claims. If the background against which the meeting took place was one where Afzal was asserting that the only issues on which out of court agreement was possible was the partition of the jointly owned property, I think it more likely that Ashraf attended the meeting hoping to reach agreement on those issues but without intending to abandon claims he might have in relation to other properties the purchase of which had been financed wholly or in part by the partnership and/or where the names in which the property was registered did not reflect the beneficial ownership."
"A good illustration although by no means typical of the difficulty in regarding the simple division agreed to on 3 August 2002 as resolving all the issues between the brothers".
Hart J's conclusion, which is to be found in paragraphs 36 and 37 of his judgment, was, as I have indicated, in favour of Ashraf; namely, that the agreement was not one of compromise on all issues, but covered only the jointly-held properties identified in the document generated and signed at the meeting:
"36. It seems to me that both brothers would have come to the meeting with the knowledge that there were potentially other issues between them than simply the partition of the jointly held properties and that the omission of Afzal to include in the paperwork produced at the meeting any formula purporting to make the agreement one in full and final settlement was not accidental. At any rate, nothing having been expressly said about the agreement being in full and final settlement I do not think that the circumstances made it necessary or obvious that such a term should be implied.
37. Accordingly I answer the first issue in the negative …"
"…exceeded the generous ambit within which reasonable disagreement about the conclusion to be drawn from the evidence is possible".
"If the background against which the meeting took place was one where Afzal was asserting that the only issues in which out of court agreement was possible was the partition of the jointly owned property, I think it more likely than not Ashraf attended the meeting hoping to reach agreement on those emphasised issues but without intending to abandon claims he might have in relation to other properties the purchase of which had been financed wholly or in part by the partnership and/or with the names in which the property was registered did not reflect the beneficial ownership."
He said much the same again when expressing his conclusion on this issue in paragraph 36.
Lord Justice May:
Lady Justice Arden:
"My Lords, I will say at once that I prefer the approach of the learned judge. But I think I should preface my explanation of my reasons with some general remarks about the principles by which contractual documents are nowadays construed. I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds  1 W.L.R. 1381, 1384-1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen  1 W.L.R. 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of 'legal' interpretation has been discarded. The principles may be summarised as follows:
(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the 'matrix of fact,' but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them."
"Lord Hoffmann recognises that the boundaries of this exception of pre-contractual negotiations from the factual matrix are not clear. It may be very difficult to distinguish whether something that was stated in the course of pre-contractual negotiations is or is not admissible. For instance it may be evidence of the fact which forms part of the matrix which is admissible on interpretation, or alternatively it may amount to an agreement as to the way a provision under the agreement is to be interpreted."
"setting out a stall and that has got smaller and smaller as we have gone along".
Lord Justice Auld:
Order: Appeal dismissed.